City Council approves latest step in Convention Center expansion

The San Diego Convention Center’s proposed expansion just took another step forward.

The City Council voted Tuesday to create a Convention Center Facilities District (CCFD) that would ultimately pay for an expansion of the Convention Center.

Hoteliers within the CCFD will vote by late April to assess a tax on their guests that would pay for a large share of the debt service from the construction bonds needed to finance the project. The vote requires a two-thirds majority to be approved, and would take effect in June.

Councilmembers David Alvarez and Marti Emerald voted against the measure, with the rest of the council approving.

Members of the council expressed reservations with the project after many labor representatives and some hoteliers voiced their opposition to it, but reiterated that the vote Tuesday was strictly to create the CCFD, to deem it necessary to incur bond debt to fund the project and to have the CCFD vote to approve funding the project.

“From my standpoint, I look at not just revenue but immediate jobs created for San Diego, and this is a winner,” said Council President Pro Tem Kevin Faulconer. “We heard from a lot of people who were opposed to things that we’ll be able to flesh out, and I look forward to it.”

Explaining his vote in opposition, Alvarez said he was uncomfortable with the suggestion that every step in the Convention Center expansion is billed as vital to the life of the project. He also said the set-up of the taxes within the CCFD seemed to be selected at random.

“However, I wish all well as this goes forward. At the end of the day a Convention Center expansion is beneficial to the city of San Diego,” he said.

The CCFD would impose a 3 percent tax on guests staying in hotels of more than 30 rooms in the downtown area, a 2 percent tax on those in Mission Bay, Mission Valley and Harbor Island and all other hotels would assess a 1 percent fee on their guests.

Those fees would account for 75 percent of a project currently estimated at $520 million, or $35.7 million annually. The San Diego Unified Port District would spend another $3 million per year on the project, and the City Council would divert another $3.5 million per year to paying the debt service from its hotel occupancy tax revenue.

Councilmember Carl DeMaio nearly delayed the vote by seeking to have the city’s $3.5 million share be paid back if the tax were to generate excess revenue. The move to limit taxpayer exposure to the project wasn’t possible, and he settled on coaxing a pledge from hotelier Mike McDowell to work together to build in supplemental bond issuance protections for the general fund in the future.

“I’m supportive of the city putting this seed money in; I believe in the project, but I believe we need to protect taxpayers,” DeMaio said.

Emerald supported DeMaio’s efforts to put a cap on taxpayer exposure, and said she didn’t want the project to be spoon-fed to her one step at a time.

“This isn’t just another step,” she said. “This is tying our hands.”

The City Council also heard from the Independent Budget Analyst (IBA) and Charles Black, manager of the phase 3 expansion project, on why they had different projections for incremental transient occupancy tax revenue that the city intends to use to pay its $3.5 million share of debt servicing.

Black defended a November 2010 report from AECOM (NYSE: AECOME) projecting $12.7 million in additional annual transient occupancy tax revenue from additional Convention Center business as a result of the expansion. The IBA instead projects between $5.2 million and $9.7 million.